Dell's Adamo Saga Shows Why the Stock Isn't Rebooting

Did Dell misgauge the market, or was the Adamo just not competitive?

Dell's (Nasdaq: DELL) management has claimed that it understands computer buyers better than its competitors do because its employees talk directly to thousands of customers every day. So why did Dell flounder for almost two years with its high-end Adamo notebooks before recently deciding to pull the plug on the series this week? The saga offers insight into why years of PC comeback efforts have left Dell merely treading water.

Off-targetThe Adamo, introduced in March 2009, is Dell's ultraportable response to Apple's (Nasdaq: AAPL) MacBook Air. Both replace the traditional hard drive with flash memory, enabling a thinner, lighter, and faster laptop. When the Adamo was introduced, a reviewer compared it to the MacBook Air and concluded that "there's much to like about it" but that "the system is hurt badly through the price-to-performance ratio." At the time, Adamo pricing started at $1,999, compared with $1,499 for the MacBook Air. The reviewer also criticized the Adamo's battery life, as well as its "maddening" multitouch track pad, its weight, and its "noisy" fan.

How did Dell so badly miss the mark? Moreover, why was Dell's price 33% higher than that of a competitor known for premium prices? Dell -- the world’s second largest PC maker -- should have a cost advantage because of larger volume discounts from suppliers. Apple has well under one-half of Dell's worldwide market share.

If at first you don't succeed …It wasn't too long before Dell dropped the Adamo's price by $500 to $1,499. After only 10 months on the market, a second $500 price cut took the Adamo to $999 -- half the original price. Perhaps Dell had learned from its mistakes and the third time would be the charm.

But the Adamo had a much, much slower processer than the MacBook Air. In late December, Dell launched an upgraded Adamo and dropped the price to $899. The new product was more competitive with the MacBook Air, thanks to the faster processor, a larger flash drive, added RAM memory, and the lower price (see table). Alas, Dell missed the holiday shopping season.

Smackdown: Adamo 13 vs. 13-inch MacBook Air

Dell Adamo 13

Apple 13-Inch MacBook Air

Price

$899

$1,299

Display

13.4”, 1366x768

13.3”, 1280x800

Processor

2.13GHz Intel Core 2 Duo

1.86GHz Intel Core 2 Duo

System (RAM) Memory

4GB

2GB

Flash Drive

128GB

128GB

Battery Life

Up to 5 hours

Up to 7 hours wireless

Weight

4.0 pounds

2.9 pounds

Height

0.65 inch

0.68 inch

Width

13.0 inches

12.8 inches

Depth

9.5 inches

8.9 inches

Software

Windows 7 Home Premium and Microsoft Works SE 9.0 (word processing and spreadsheet)

Apples to AdamosThe last Adamo was priced $400, or 31%, below the most comparable MacBook Air and $100 below the smallest, least powerful MacBook Air. That pricing is more in keeping with the premium that Macs consistently command.

The MacBook Air is arguably worth its higher price. Dell's Adamo was larger and 38% heavier, and it had a much shorter battery life. Apple topped PC World's latest reader survey of laptop vendor tech support and service, while, Dell, along with Hewlett-Packard(NYSE: HPQ), led the survey's "losers" list. Macs come with a long list of software applications. The Mac's growing fan base might also contend that the Microsoft(Nasdaq: MSFT) Windows 7 operating system on Dell's Adamo is inferior to the Mac operating system.

Analysis paralysisAdamo sales could also been hampered by a confusing shopping experience. Does that matter? Apple CEO Steve Jobs thinks so. He has said Apple's research found that confused shoppers are less likely to buy.

The Adamo specs on Dell's website are woefully sparse. In contrast, Apple's website does a terrific job of outlining tech specs and detailed features for the MacBook Air family, making it easy to shop and compare models.

Foolish takeawayAfter almost two years and a 55% price drop, Dell decided to cancel its Adamo line this past Friday. All this came at a time when the MacBook Air appears to be finding its footing in the market after a competitive refresh last fall.

The Adamo saga provides insight into why Dell has struggled to regain market share in its core PC business. Does the company have such a poor understanding of the market that it can't figure out what will sell? Or is it just not competitive? Or both? Whichever the answer, nothing in the saga indicates that Dell's floundering is over.